Adur District Council - PSAA · Adur District Council Annual Audit Letter for the year ended 31...

Ernst & Young LLP

Adur District CouncilAnnual Audit Letter for the year ended 31 March 2017

October 2017

Contents

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Contents

Executive Summary ................................................................................................................................................................................ 2

Purpose .................................................................................................................................................................................................. 5

Responsibilities....................................................................................................................................................................................... 7

Financial Statement Audit ..................................................................................................................................................................... 10

Value for Money .................................................................................................................................................................................... 13

Other Reporting Issues .......................................................................................................................................................................... 17

Focused on your future .......................................................................................................................................................................... 20

Public Sector Audit Appointments Ltd (PSAA) have issued a ‘‘Statement of responsibilities of auditors and audited bodies”. It is available from the Chief Executive of each auditedbody and via the PSAA website (www.psaa.co.uk)

The Statement of responsibilities serves as the formal terms of engagement between appointed auditors and audited bodies. It summarises where the different responsibilities ofauditors and audited bodies begin and end, and what is to be expected of the audited body in certain areas.The “Terms of Appointment (updated 23 February 2017)” issued by PSAA sets out additional requirements that auditors must comply with, over and above those set out in theNational Audit Office Code of Audit Practice (the Code) and statute, and covers matters of practice and procedure which are of a recurring nature.

This Annual Audit Letter is prepared in the context of the Statement of responsibilities. It is addressed to the Members of the audited body, and is prepared for their sole use. We,as appointed auditor, take no responsibility to any third party.Our Complaints Procedure – If at any time you would like to discuss with us how our service to you could be improved, or if you are dissatisfied with the service you are receiving,you may take the issue up with your usual partner or director contact. If you prefer an alternative route, please contact Steve Varley, our Managing Partner, 1 More London Place,London SE1 2AF. We undertake to look into any complaint carefully and promptly and to do all we can to explain the position to you. Should you remain dissatisfied with any aspectof our service, you may of course take matters up with our professional institute. We can provide further information on how you may contact our professional institute.

http://www.audit-commission.gov.uk/pages/default.aspx

Executive Summary

Annual Audit Letter for the year ended 31 March 2017 – Adur District Council

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Executive Summary

We are required to issue an annual audit letter to Adur District Council (the Council) following completion of our audit procedures for the yearended 31 March 2017.

Below are the results and conclusions on the significant areas of the audit process.

Area of Work Conclusion

Opinion on the Council’s:► Financial statements

Unqualified – the financial statements give a true and fair view of the financial position of theCouncil as at 31 March 2017 and of its expenditure and income for the year then ended.

► Consistency of other information publishedwith the financial statements

Other information published with the financial statements was consistent with the AnnualAccounts.

Concluding on the Council’s arrangements forsecuring economy, efficiency andeffectiveness

We concluded that you have put in place proper arrangements to secure value for money inyour use of resources.


Reports by exception:► Consistency of Governance Statement The Governance Statement was consistent with our understanding of the Council.

► Public interest report We had no matters to report in the public interest.

► Written recommendations to the Council,which should be copied to the Secretary ofState

We had no matters to report.

► Other actions taken in relation to ourresponsibilities under the Local Audit andAccountability Act 2014

We had no matters to report.


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Reporting to the National Audit Office (NAO)on our review of the Council’s Whole ofGovernment Accounts return (WGA).

The Council is below the specified audit threshold of £350 million. Therefore, we did notperform any audit procedures on the consolidation pack.

As a result of the above we have also:


Issued a report to those charged withgovernance of the Council communicatingsignificant findings resulting from our audit.

Our Audit Results Report was issued on 26 September 2017.

Issued a certificate that we have completed theaudit in accordance with the requirements ofthe Local Audit and Accountability Act 2014and the National Audit Office’s 2015 Code ofAudit Practice.

Our certificate was issued on 27 September 2017

In January 2018 we will also issue a report to those charged with governance of the Council summarising the certification work we haveundertaken.

We would like to take this opportunity to thank the Council’s staff for their assistance during the course of our work.

Paul King

Associate PartnerFor and on behalf of Ernst & Young LLP

Purpose


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Purpose

The Purpose of this LetterThe purpose of this annual audit letter is to communicate to Members and external stakeholders, including members of the public, the key issuesarising from our work, which we consider should be brought to the attention of the Council.

We have already reported the detailed findings from our audit work in our 2016/17 Audit Results Report to the September Joint GovernanceCommittee, representing those charged with governance. We do not repeat those detailed findings in this letter. The matters reported here are themost significant for the Council.

Responsibilities


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Responsibilities

Responsibilities of the Appointed AuditorOur 2016/17 audit work has been undertaken in accordance with the Audit Plan that we issued in January 2017 and is conducted in accordancewith the National Audit Office's 2015 Code of Audit Practice, International Standards on Auditing (UK and Ireland), and other guidance issued bythe National Audit Office.

As auditors we are responsible for:

► Expressing an opinion:

► On the 2016/17 financial statements; and

► On the consistency of other information published with the financial statements.

► Forming a conclusion on the arrangements the Council has to secure economy, efficiency and effectiveness in its use of resources.

► Reporting by exception:

► If the annual governance statement is misleading or not consistent with our understanding of the Council;

► Any significant matters that are in the public interest;

► Any written recommendations to the Council, which should be copied to the Secretary of State; and

► If we have discharged our duties and responsibilities as established by thy Local Audit and Accountability Act 2014 and Code of AuditPractice.

Alongside our work on the financial statements, we also review and report to the National Audit Office (NAO) on you Whole of GovernmentAccounts return. The Council is below the specified audit threshold of £350 million. Therefore, we did not perform any audit procedures on thereturn.


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Responsibilities of the CouncilThe Council is responsible for preparing and publishing its statement of accounts accompanied by an Annual Governance Statement. In the AGS,the Council reports publicly each year on how far it complies with its own code of governance, including how it has monitored and evaluated theeffectiveness of its governance arrangements in year, and any changes planned in the coming period.

The Council is also responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Financial StatementAudit


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Financial Statement Audit

Key IssuesThe Council’s Statement of Accounts is an important tool for the Council to show how it has used public money and how it can demonstrate itsfinancial management and financial health.

We audited the Council’s Statement of Accounts in line with the National Audit Office’s 2015 Code of Audit Practice, International Standards onAuditing (UK and Ireland), and other guidance issued by the National Audit Office and issued an unqualified audit report on 27 September 2017.

Our detailed findings were reported to the 26 September 2017 Joint Governance Committee.

The key issues identified as part of our audit were as follows:

Significant Risk Conclusion

Management override of controlsAs identified in ISA (UK and Ireland) 240, management isin a unique position to perpetrate fraud because of itsability to manipulate accounting records directly orindirectly and prepare fraudulent financial statements byoverriding controls that otherwise appear to beoperating effectively.We identify and respond to this fraud risk on every auditengagement. For local authorities, the potential for theincorrect classification of revenue spend as capital is aparticular area where there is a risk of managementoverride.

We obtained a full list of journals posted to the general ledger during the year, andanalysed these journals using criteria we set to identify any unusual journal types oramounts. We then tested those journals that met our criteria to supportingdocumentation. No issues were identified.We considered the accounting estimates for evidence of management bias. Nonewas identified.We also reviewed and evaluated the business rationale for significant unusualtransactions and reviewed capital expenditure on property, plant and equipment toensure it meets the relevant accounting requirements to be capitalised.We did not identify any evidence of management override from these procedures.

The Council’s Statement of Accounts is an important tool for the Council to show how it has used public money and how it can demonstrate itsfinancial management and financial health.


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Our application of materialityWhen establishing our overall audit strategy, we determined a magnitude of uncorrected misstatements that we judged would be material for thefinancial statements as a whole.

Item Thresholds applied

Planning materiality We determined planning materiality to be £1.08 million (2015/16: £1.18 million), which is2% of Gross Revenue Expenditure reported in the accounts of £48.483 million adjusted forseveral non-cash items.We consider Gross Revenue Expenditure to be one of the principal considerations forstakeholders in assessing the financial performance of the Council.

Reporting threshold We agreed with the Joint Governance Committee that we would report to the Committee allaudit differences in excess of £54 thousand (2015/16: £59 thousand)

We also identified the following areas where misstatement at a level lower than our overall materiality level might influence the reader. For theseareas we developed an audit strategy specific to these areas.

· Remuneration disclosures including any severance payments, exit packages and termination benefits; and

· Related party transactions.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevantqualitative considerations.

Value for Money


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Value for Money

We are required to consider whether the Council has put in place ‘proper arrangements’ to secure economy, efficiency and effectiveness on its useof resources. This is known as our value for money conclusion.

Proper arrangements are defined by statutory guidance issued by the National Audit Office. They comprise your arrangements to:

· Take informed decisions;· Deploy resources in a sustainable manner; and· Work with partners and other third parties.

Proper arrangements forsecuring value for money

Informeddecision making

Working withpartners andthird parties

Sustainableresource

deployment


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We identified one significant risks in relation to these arrangements. The tables below present the findings of our work in response to the riskidentified and any other significant weaknesses or issues to bring to your attention].

We have performed the procedures outlined in our audit plan. [We did not identify any significant weaknesses in the Council’s arrangements

We therefore issued an unqualified value for money conclusion on 27 September 2017

Significant Risk Conclusion

The Council will not be able to plan its financeseffectively to support the sustainable deliveryof strategic priorities and maintain statutoryfunctions.The Council continues to face significantfinancial challenges over the coming years.Whilst we concluded last year that the Council’sMedium Term Financial Plan was sound and wenoted that plans were in place to deliver the2016/17 budget, and your financial monitoringis suggesting a marginal overspend of £40thousand compared to the forecast. We notethe Council needs to deliver savings of £2.433million for 2017/18. At 31 March 2016, theCouncil had £1.686 million of useable reserves.This includes your General Fund reserves, whichat the end of the 2015/16 financial year, werejust below the minimum level set by the Section151 Officer. These reserves would not besufficient to cover any shortfall in savings werethey not to be achieved.

We reviewed the PSAA’s value for money profile tools which compared the Council to itsnearest statistical neighbours. This highlighted a number of areas where the Councilsexpenditure is significantly higher or lower than other similar councils. Many of those areaswhere the Council is reportedly higher spending result from the specific nature orarrangements at the authority, such as its size (which typically means higher cost per head,as one of the smallest authorities) or partnership working arrangements which result in lowadministration costs. Further, there are unique demographic and geographical influences onthese factors. Spend on Housing Services per head is in the highest 20%, for example, whilenet spend on Housing Benefit administration is in the lowest 10%. Each of these specificareas are known to the Council and areas of specific focus. The fact these figures are higherthan statistical neighbours does not suggest the Council doesn’t have proper arrangementsin place to achieve economy, efficiency and effectiveness.

We also reviewed the Authority’s medium term financial forecast. It demonstrates acumulative budget gap of around £1.579 million up to the end of 2019/20. The Authorityrecognises that reserves cannot, and should not, be used to bridge the base budget gap inthe absence of longer term plans to make the necessary savings and we note from theMedium Term Financial Strategy that there is no planned future use of reserves to addressbudget gaps. The assumptions within these plans appear reasonable. At this point, havingreviewed the 2016/17 outturn and the Medium Term Financial Strategy, we judge theAuthority to be financially resilient for the foreseeable future, and that the measures takenduring 2016/17 have been both robust and proportionate. It is important that the Authoritycontinues its track record of delivering its planned budget and savings.As noted above, delivery of previous saving requirements within service budgets proves theCouncil’s ability to effectively monitor those saving requirements to ensure appropriatedelivery. We note that in 2016/17, the Councils monitoring of savings was effective and


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resulted saving and additional income being identified of £1.034m. This meant the Council’soutturn position was £81,000 surplus compared to budgeted expenditure for the period. Wehave confirmed that this monitoring process remains in place for 2017/18 and isappropriate to identify any deviation within the saving requirement.We recognise that the challenge to the Council remains, and while there are no unidentifiedsavings requirements in 2017/18, the budget book notes that further savings of £1,168mare required in 2018/19. The Authority’s budget planning cycle for 2018/19 is not yetcomplete and therefore these savings are currently unidentified in detail. Based on previousexperience of the Authority’s budget process, whereby the savings required have beendetailed in the budget book and through budget monitoring procedures down to service oractivity level, we have concluded that the saving requirement will be appropriately identifiedand monitored. We are also able to take some assurance from the Authority’s track record ofdelivering those savings they identify.

Other ReportingIssues


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Other Reporting Issues

Whole of Government AccountsThe National Audit Office sets out procedures to be performed on the consolidation pack prepared by the Council for Whole of GovernmentAccounts purposes, subject to a specified audit threshold of £350 million. The Council are below this threshold and therefore, we did not performany audit procedures on the consolidation pack.

Annual Governance StatementWe are required to consider the completeness of disclosures in the Council’s annual governance statement, identify any inconsistencies with theother information of which we are aware from our work, and consider whether it is misleading.

We completed this work and did not identify any areas of concern.

Report in the Public InterestWe have a duty under the Local Audit and Accountability Act 2014 to consider whether, in the public interest, to report on any matter that comesto our attention in the course of the audit in order for it to be considered by the Council or brought to the attention of the public.

We did not identify any issues which required us to issue a report in the public interest.

Written RecommendationsWe have a duty under the Local Audit and Accountability Act 2014 to designate any audit recommendation as one that requires the Council toconsider it at a public meeting and to decide what action to take in response.

We did not identify any issues which required us to issue a written recommendation.

Objections ReceivedWe did not receive any objections to the 2016/17 financial statements from member of the public.

Other Powers and DutiesWe identified no issues during our audit that required us to use our additional powers under the Local Audit and Accountability Act 2014.


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IndependenceWe communicated our assessment of independence in our Audit Results Report to the Joint Governance Committee on 26 September 2017. In ourprofessional judgement the firm is independent and the objectivity of the audit engagement partner and audit staff has not been compromisedwithin the meaning regulatory and professional requirements.

Control Themes and ObservationsAs part of our work, we obtained an understanding of internal control sufficient to plan our audit and determine the nature, timing and extent oftesting performed. Although our audit was not designed to express an opinion on the effectiveness of internal control, we are required tocommunicate to you significant deficiencies in internal control identified during our audit.

Our audit did not identify any controls issues to bring to the attention of the Joint Governance Committee.

Focused on yourfuture


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Focused on your future

Area Issue Impact

Earlier deadlinefor productionand audit of thefinancialstatementsfrom 2017/18

The Accounts and Audit Regulations 2015 introduced a significantchange in statutory deadlines from the 2017/18 financial year.From that year the timetable for the preparation and approval ofaccounts will be brought forward with draft accounts needing to beprepared by 31 May and the publication of the audited accounts by31 July.

These changes provide challenges for both thepreparers and the auditors of the financialstatements.

To prepare for this change the Authority has revisedits accounts production process which to achievedraft accounts production by mid-June for 2016/17.The Authority intends to refine this further for2017/18.

As auditors, nationally we have:• Issued a thought piece on early closedown• As part of the strategic Alliance with CIPFA

jointly presented accounts closedownworkshops across England, Scotland andWales

• Presented at CIPFA early closedown eventsand on the subject at the LocalGovernment Accounting Conferences inJuly 2017

Locally we have• Undertaken substantive procedures in Spring

2017 in order to reduce the work required atthe post-statement stage of the audit.

• Brought forward the audit of 2016/17 June2017 and plan to bring the audit of 2017/18to June 2018

Together with the Authority, we are in the process ofagreeing further areas for early work which can becompleted early. These include testing of majorincome and expenditure streams at month 9 and


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Area Issue Impactdiscussing and agreeing material estimationprocedures by month 9.

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